Yahoo Finance Bill sets out plan to tackle 'extortionate' UK overdraft fees
Bank customers ripped off by “extortionate” overdraft fees will get support next week from a parliamentary bill that promises to protect the most financially vulnerable from escalating charges.
Rachel Reeves, a Labour MP who sits on the Treasury select committee, will outline plans on Tuesday for regulators at the Financial Conduct Authority (FCA) to cap the maximum amount that banks can charge customers for unauthorised overdrafts, similar to the limit imposed on charges on payday loans of £24 a month.
She argued: “Banks are sending many people deeper into debt with extortionate charges on unauthorised overdrafts. They should have a responsibility to help people out of debt, rather than adding to their problems with rip-off charges.”
The FCA, the City watchdog, has included overdraft fees in a review into high interest loans, alongside payday loans and doorstep lending. It launched the review after the Competition and Markets Authority stepped back from imposing a cap on overdraft fees following its two-year investigation into high street banks. The CMA said instead banks should publish their monthly maximum charge for going over the limit.
Two years ago, the FCA capped maximum charges on payday loans at 0.8% a day of the amount borrowed. Reeves is pushing for similar restrictions to be placed on banks, which make £1.2bn a year from unauthorised-overdraft fees.
According to consumer group Which?, the cost of borrowing £100 through an unauthorised overdraft for 28 days from some high street banks is as high as £90. This is up to four times higher than the allowed maximum charges on a payday loan.
Reeves, MP for Leeds West, has long campaigned on the issue and wants to introduce her unauthorised overdrafts (cost of credit) bill in the House of Commons on Tuesday. She noted that households were saving less and less, with the savings ratio falling since 2010 to a record low of 3.3%, while unsecured debt went up by 10% last year.
The household debt to income ratio has grown by 6% in the past year and is now at 145%, which she said “poses a serious risk to our economy”.
With the election looming, the bill will not make it into law in this parliament, but if she is re-elected, Reeves wants to reintroduce it either as a private members’ bill or through amending a Treasury or Department for Business, Energy & Industry strategy bill in parliament. She will also call on all parties to include this in their election manifestos.
She said: “Payday lenders are already subject to limits on the fees they can charge. I want to see a similar cap introduced for our high street banks and an end to these unfair and unjust fees.”
